Ben Franklin and Saving for Retirement

Steve Kurtzahn
September 21, 2022

Most Americans are familiar with Benjamin Franklin, and it’s not just because his face is on the $100 bill. Franklin is considered one of our nation’s Founding Fathers, along with such people as George Washington and Thomas Jefferson. Franklin was a writer, printer, inventor, scientist and diplomat. He helped draft and signed the Declaration of Independence. He was our first Ambassador to Sweden and then to France, as well as the first Postmaster General.

Benjamin Franklin also published Poor Richard’s Almanac. This almanac of Colonial America was filled with agricultural, weather, astronomical and astrological information that folks could use over the course of a year. It was filled with Franklin’s trite sayings. Some of his best expressions had to do with personal finances and saving money. You may have heard a couple of these before—

“By failing to prepare, you are preparing to fail.”

“A penny saved is a penny earned.”

Old Ben Franklin’s sayings can still teach us in the 21 Century, especially when it comes to our personal finances. Let’s apply Franklin’s words to saving for retirement—“By failing to prepare, you are preparing to fail.” So, if we don’t prepare for our financial needs after we stop working, we’re setting ourselves up for all sorts of economic challenges. And Franklin’s words, “A penny saved is a penny earned,” really need no explanation at all.

In our day and age, saving for retirement is not just a convenience, it’s a necessity. Years ago it used to be that the company you worked for all your life would provide you with a decent pension. Very few companies provide pensions anymore—but many of them offer their employees 401(k)s or 403(b)s so you can save for retirement yourself. You can also save for retirement outside of your employer plan in an Individual Retirement Account (IRA). I once knew a man who worked as a truck driver his entire life. After he retired, his pension checks were larger than what he was making when he was actively working! That just doesn’t happen anymore.

Unfortunately, according to a 2019 study, 22% of American adults have less than $5,000.00 saved for retirement. What’s even more depressing, 15% of adults in the United States have absolutely nothing saved. 

Most folks in these situations hope that their Social Security checks will tide them through retirement. Some other interesting statistics tell us that 20% of our senior citizens depend on Social Security for 90% of their retirement income. For at least half of all US retirees, Social Security makes up 50% or more of their income after they stop working. In July 2022, the average monthly Social Security check was $1,544.70. So after considering all this, should it surprise us that so many seniors are still in the workforce, struggling to make ends meet?

So let’s go back to Benjamin Franklin’s second saying about saving money: “A penny saved is a penny earned.” In order to properly provide for ourselves during retirement, we need to save, save, save! And the earlier we start saving, the better! A couple tools folks have available for saving for retirement are IRAs and 401(k)s. Within these types of accounts investors can save their money in money-market accounts, bank certificates of deposit (CDs), US Treasuries, stocks, bonds, mutual funds, ETFs, and even real estate in what are called REITs!

Many have invested their retirement funds within their IRAs and 401(k)s in stock mutual funds, especially those that replicate what’s called the Standard & Poor’s 500 Index. The S & P 500 started in 1957. From its inception to the end of 2021, the index has seen an average annual return of 11.88%. Residential properties have seen a 10.6% annual return, commercial properties 9.5%. But how can you own real estate in an IRA? In a REIT, of course! A Real Estate Investment Trust can be traded like a stock or an ETF. A REIT can invest in many different kinds of real estate. All of this is informational only. We are not offering investing advice. If you want to know more about all these types of investments, please contact a financial advisor.

But many feel uncomfortable investing their hard earned money in the stock market. So they limit their investments to relatively safe financial instruments like money-markets, bank CDs and Treasuries. Returns are less than what can be obtained in the stock market, but at least you don’t have to worry about market collapses. And what happens if the stock market is down when you want to retire? As these financial instruments pay interest, that interest compounds and grows. As time progresses, you earn interest on the interest you’ve already earned. 

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

Consider how compounding, even at a low interest rate, will grow into a substantial sum. Let’s use this as an example: You save $100 a month in your IRA. You invest it all in bank CDs that pay 5% interest, compounded annually. After 40 years you have put away $48,000.00. Because of compounding interest, however, your retirement nest-egg has actually grown to $144,959.73!

Ben Franklin was right about many things, especially when it comes to saving money. We should all be saving so we can have a comfortable retirement.

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